An Alternative View of the Shale Boom

There are always nay-sayers who predict that the current boom, whatever it may be, will soon be a bust. Recently, however, some pretty prominent voices have cautioned that all of the rosy predictions about the future of the shale boom, US energy independence, and the continued growth of US oil and gas production are false – a bubble soon to burst.

One of those is J. David Hughes, a geoscientist with the Post-Carbon Institute. He spent 32 years with the Geological Survey of Canada, and coordinated an assessment of Canada’s unconventional natural gas potential. He has authored “Drill, Baby, Drill,” published last year by the Post Carbon Institute and the Energy Policy Forum. It is a pretty comprehensive review of the long-term viability of the shale plays. Some excerpts:

“World energy consumption has more than doubled since the energy crises of the 1970s, and more than 80 percent of this is provided by fossil fuels. In the next 24 years world consumption is forecast to grow by a further 44 percent–and U.S. consumption a further seven percent–with fossil fuels continuing to provide around 80 percent of total demand.”

“Shale gas production has grown explosively to account for nearly 40 percent of U.S. natural gas production; nevertheless production has been on a plateau since December 2011 –80 percent of shale gas production comes from five plays, several of which are in decline. The very high decline rates of shale gas wells require continuous inputs of capital–estimated at $42 billion per year to drill more than 7,000 wells–in order to maintain production. In comparison, the value of shale gas produced in 2012 was just $32.5 billion.”

“Tight oil plays are characterized by high decline rates, and it is estimated that more than 6,000 wells (at a cost of $35 billion annually) are required to maintain production, of which 1,542 wells annually (at a cost of $14 billion) are needed in the Eagle Ford and Bakken plays alone to offset declines. As some shale wells produce substantial amounts of both gas and liquids, taken together shale gas and tight oil require about 8,600 wells per year at a cost of over $48 billion to offset declines. Tight oil production is projected to grow substantially from current levels to a peak in 2017 at 2.3 million barrels per day. At that point, all drilling locations will have been used in the two largest plays (Bakken and Eagle Ford) and production will collapse back to 2012 levels by 2019, and to 0.7 million barrels per day by 2025. In short, tight oil production from these plays will be a bubble of about ten years’ duration.”

Hughes’ report is filled with graphs illustrating production and consumption world-wide and by field. Here is an example:

The Haynesville, Barnett, Fayetteville, and Woodford plays, which collectively produce 68 percent of United States shale gas, are late-middle-aged in terms of the life cycle of shale plays. Unless there is a substantial increase in gas price and a large ramp-up in drilling, these plays will go into terminal decline. The prognosis for the top nine shale plays in the United States, which account for 95 percent of shale gas production, is presented in Table 2.

Hughes also discusses the two biggest oil shale plays, the Bakken and the Eagle Ford. Together, these fields produce more than 80 percent of tight oil production in the US. “Overall field decline rates are such that 40 percent of production must be replaced annually to maintain production.”

Given the EIA estimate of available well locations, the Bakken, which has produced about half a billion barrels to date, will ultimately produce about 2.8 billion barrels by 2025 (close to the low end of the USGS estimate of 3 billion barrels). Similarly, the Eagle Ford will ultimately produce about 2.23 billion barrels, which is close to the EIA estimate of 2.46 billion barrels. Together these plays may yield a little over 5 billion barrels, which is less than 10 months of U.S. consumption.

Some figures from Hughes’ discussion of the Eagle Ford:

“The future production profile of the Eagle Ford–assuming a total of 11,406 effective locations, a 40 percent overall field decline, and current rates of drilling with all new wells performing as in 2011–is illustrated in Figure 75. This yields a production profile which rises 34 percent from June 2012 levels to a peak of 0.891 million barrels per day in 2016 as illustrated in Figure 75. At this point, with all well locations drilled, production declines at the overall field decline rate of about 40 percent. The overall field decline may decrease somewhat over time after peak as wells approach terminal decline rates. This also assumes that 70 percent of the wells drilled to date have targeted the oil-rich portion of theEagle Ford play. Total oil recovery in this scenario is about 2.23 billion barrels by 2025, which agrees quite well with the EIA’s estimate of 2.46 billion barrels.157 Average well production falls below 10 bbls/d in this scenario by 2021.”

Hughes’ report provides a wealth of data and puts the “shale boom” in perspective. He may be overly pessimistic, but he certainly makes one think about the world’s unsustainable thirst for hydrocarbons.

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